Troubled Synlait Milk wins $130 million rescue loan vote

Thursday, 11 July 2024

Synlait Milk shareholders have thrown the dairy company a $130 million loan lifeline.

At a special meeting at Synlait’s plant in Dunsandel, Canterbury, shareholders voted in favour of letting Synlait draw down a $130m loan from Bright Dairy International, a Chinese dairy company that owns just over 39% of Synlait’s shares.

Synlait will use the money to repay loans to its bankers and buy it time to recapitalise by raising “hundreds of millions of dollars” from investors.

Without the loan, Synlait would not have been able to make a payment bankers were demanding on July 15, chairperson George Adams said, which could have resulted in directors having to call in receivers.

Before the vote, Adams said: “The seriousness of today’s resolution should not be underestimated.”

Among the shareholders who voted in favour of drawing down on the loan was a2 Milk, which owns 19.8% of the shares in Synlait.

Synlait hit trouble after a large pre-pandemic investment programme, which included spending $280m on a manufacturing plant at Pōkeno, south of Auckland, $125m on a new liquid plant at Dunsandel and $150m on cheese companies Talbot Forest Cheese and Dairyworks.

At the end of May, it owed creditors $585m, and its bankers were demanding it deleverage.

The board said the company could not simply trade its way out of trouble.

The shareholder vote had to be held to allow Synlait to accept the $130m loan because Bright Dairy was a related party.

Julia Zhu, from Synlait shareholder Bright Dairy, said: “We are having to make, and are willing to make, a very significant commitment.”

“We will not lessen out commitment during challenging times,” Zhu said.

In outlining Synlait’s future, Adams said it would be aiming to raise capital in the next two months, but that would be challenging as it was looking to raise capital equal to several times its current market value.

Shareholder Miles White asked Adams to explain how the company had got itself into such a mess.

“It seemed like Synlait was a Rolls Royce company, and it seems like we are begging on our knees,” White said.

Adams said Synlait had borrowed to diversify geographically to lessen its overall earthquake risk from the South Island, and also sought to diversify away from its heavy reliance on a2 as a customer.

“There was reasonable rationale behind why the investments were made, but issues arose when the investments didn’t pay off,” Adams said.

“Covid happened and the birth rate in China roughly halved.”

Adams was confident farmers would back Synlait, if it won the vote, and recapitalised.

“Our farmers have told us they don’t want to leave, if they don’t have to,” he said.

Synlait remained in dispute with a2 Milk over a manufacturing deal with the infant formula maker.

Adams denied Synlait had an acrimonious relationship with a2 when pressed on it by shareholders, but said improving that relationship was a priority.

Shareholder Stephen Bryant was worried that smaller shareholders would be respected in any capital raising that followed a successful vote.

Adams said the Synlait continued to review its North Island operations, including the future of its Pōkeno plant, which is able to produce plant-based milks.

Synlait had been trying to sell its Dairyworks consumer business, which owns the Alpine and Rolling Meadow cheese brands, but had taken the business off the market after not getting high enough bids.

Synlait would focus on business-to-business and its food service business, with its high-end dairy products, like infant formula, Adams said.